A federal judge barred for life a former Prudential Securities broker for failing to respond to an order instituting proceedings (OIP) issued by the SEC over fraud charges.
Chief Administrative Law Judge Brenda Murray ruled that Martin Druffner was “in default” for failing to respond to multiple motions mailed to his home in Hopkinton, Mass., related to his involvement in an abusive market-timing scheme. As a result, she barred him from the industry. “I find it is in the public interest to bar Druffner from associating with any broker, dealer or investment advisor,” Murray wrote in the judgment.
But the broker’s lifetime ban is the least of his worries, says his attorney Michael Collora, considering Druffner has been convicted of a felony and faces heavy fines and jail time. Collora says he didn’t respond to the motion due to the certainty of the outcome. “Felony convictions are generally not contested,” Collora says. Druffner’s failure to respond reflects the more serious implications of criminal prosecution versus the civil fraud case.
Druffner, 37, pled guilty to eight counts of wire fraud and securities fraud in September 2005 after being implicated along with four other Prudential brokers in a market-timing scheme that used fraud and deception to place $1.3 billion in trades for their hedge fund clients. Druffner netted $2 million in commissions. He faces up to four years in prison but his sentencing—originally scheduled for December—has been postponed indefinitely while he cooperates with U.S. Attorney Michael Sullivan’s investigation. In August 2005, Skifter Ajro, a member of Druffner’s team of brokers, pleaded guilty to similar charges. In December 2005, another Prudential broker, John Peffer, settled with the SEC in a federal district court. Peffer was barred from employment in the securities industry for three years, after which time he may reapply. He was also ordered to pay a $50,000 fine. The two remaining brokers in the Boston office, Marc Bilotti and Justin Ficken, are still in litigation.
Allegedly, the Prudential brokers concealed their identities by using multiple broker-identification numbers issued by Prudential. They hid the identities of their clients by using multiple account numbers for the same customer. The scheme allowed the Prudential brokers to sidestep market-timing restrictions set by various mutual funds. The complaint says Prudential received about 25,000 warnings about the market-timing abuses, but that the company declined to take action against the involved brokers. Druffner was fired from Prudential in December 2003 and has been blackballed in the securities industry ever since. His cooperation with the U.S. attorney’s office may help reduce his sentence.